Momentous day for GSK
OVERCOMING obstacles to deals and floats in current uncertain times is a huge challenge. Latest quarterly results from the big beasts of Wall Street showing disappearing earnings from investment banking are a case in point.
On top of that, Chinese growth fell in the second quarter, Italy is fracturing confidence in the eurozone (see below) and Sri Lanka has opened a window to struggles in the developing world.
Amid all of this the scheduled split and IPO of Haleon on Monday, the healthcare arm of pharma GlaxoSmithKline (GSK), is a pivotal event. It marks the end of a delicate four-year reorganisation by chief executive Emma Walmsley, designed to focus GSK as a vaccine and pharma innovator.
The task was not made easier by the aggression of activist investor Elliott or GSK’s early failure to come up with a Covid vaccine. The idea is to give GSK a clearer run at rejoining the pharma elite.
Post-split, its shares will sell at a discount to much of the sector, offering upside to long-term investors.
The risk is that, with a valuation of £84bn, it could become a takeover target. Haleon, home of Advil, Sensodyne and the Centrum vitamins, as a £33bn or so stand-alone healthcare firm, carrying £10bn of debt, also could be an attractive target. It already has seen off interest from Unilever and Nestle.
Does GSK have what it takes to become world-class again?
In spite of the Covid setback it remains ahead of its rivals in delivering vaccines and is transforming the lives of HIV patients. But some of those HIV patents will fall away later in this decade.
At present, shringrix, which combats shingles, is a star performer.
The big prize is GSK’s work on RSV vaccines for respiratory illness. Results from trials suggest a RSV vaccine is promising. Critical data is scheduled for autumn release. Achieving GSK’s challenging targets of 5pc earnings and 10pc sales over each of the next few years is tough.
Walmsley is putting some heft into the process with a £1bn investment in research and development for infectious diseases in poor countries. This month it unveiled plans for a research campus in Stevenage.
It is doubling down on vaccines with the £1.75bn purchase of Boston-based biopharma concern Affinivax. And it is seeking to address its gaps in cancer treatments with its purchase of Sierra Oncology.
The lack of debt on its reshaped balance sheet gives GSK the opportunity to strengthen through deal-making.
It may not seem the ideal time for Haleon to come to the London market. An overwhelming vote in favour from shareholders, together with confidence from the financial groups involved in the rebuild, should mean a fair wind despite choppy waters.
Italian job
IF MARIO Draghi with all his experience and silky skills couldn’t fix Italy’s financial ills, who can?
It is one of life’s mysteries that Italy, with its mastery of cuisine, design, fitting cruise ships, sunglasses and much else is such a basket case.
Draghi’s resignation as prime minister leaves a hole at a delicate time. The eurozone’s third-largest member is struggling under €2.5trillion (£2.1trillion) of debt.
That is bigger than that of Greece, Portugal, Ireland and Spain, the countries at the vortex of the last euro crisis, combined.
Those countries have since knuckled down and pushed through reforms. Italy has struggled to put together a workable coalition capable of reforming labour and product markets, and shrinking the state.
As the globe faces sluggish growth, the market for Italian bonds is showing serious strain. Yields stand at 3.5pc in latest trading, opening up gap of more than two percentage points with German bonds.
Britain has a productivity problem. Italy’s is much worse.
Speed bumps
ASTON Martin has survived more deathdefying scrapes than its most famous user, James Bond.
But it is gradually falling into safer hands. It now has three cornerstone investors – the Saudi Public Investment Fund, Lawrence Stroll’s Yew Tree and Mercedes-Benz.
That should provide a decent safety net as it navigates semi-conductor shortages and the circuit to electrification. Catching up or overtaking Ferrari (another Italian success) is a wholly different level of manoeuvre.